Redefining the Economic Agent: A Psychological Approach

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The main intent of this article is to investigate the social nature of an economic agent in a realistic setting of the market. After a methodical and detailed reading of the classical writings by Adam Smith, Marx Weber and John Stuart Mill, it is found that apart from rationality, various other social factors have been talked about in their respective economic models, which would be discussed herein. All of the three economists believed that economic agents and their actions depend highly on the social, cultural and moral frame inside which they operate. In light of this, I re-consider the classical economic man as a model man and use the ideas from philosophy and psychology to redefine and reinterpret the definition of an economic man. There are two important ideas discussed in this article. First, the economic man need not maximize his utility, instead he merely satisfy his needs both on the basis of monetary as well as psychic income. Second, the essence of rationality, lies in choosing the ways to satisfice. An economic man can satisfy his expectations only when he seeks out new methods wisely to achieve them and not by choosing the best available option given to him at that moment. This way, contemplating the problem from the economist’s and philosopher’s point of view, will enable us to idealize the economic man, which is a standard way of thinking in the philosophy of science. The knowledge gained by this article will help us to understand the fundamental and primal necessities, required for the development of any new economic agent model.

Posted for comments on 21 Apr 2022, 3:26 pm.

Comments (1)

  • Ioannis Katselidis says:

    General Remarks:
    The wider issue of the relationship between economics and other social sciences (e.g., psychology, sociology, etc.) is a very interesting topic. Inter alia, this issue is related to the “definition” of the economic agents or how these agents behave and make decisions. As far as the interaction of economics with psychology is concerned, it is true that even before the so-called marginal revolution, psychological ideas, and particularly psychological hedonism, had a very significant influence on the formation of economic theory. The same can be stated with respect to early Neoclassicism in the first decades of the 20th century. Nevertheless, after this period, a fundamental shift in economics took place which is known as the Paretian turn. This conceptual change, initiated mainly by Vilfredo Pareto who, following the positivist scientific philosophy, held that the construction of the fictional model of economic man (homo economicus) was adequate for the needs of economic theory, thus clearly implying that psychological findings are not necessary. In the same vein, Irving Fisher’s anti-psychology stance led him to the reformulation of consumer theory as an allegedly psychology-free theoretical construction. The reformulation was completed in the influential works of Hicks, Allen, and Samuelson, and mainstream economics expelled (at least nominally) any psychological and sociological notions found in earlier marginalist (and pre-marginalists) writings. The main consequence of the establishment of axiomatic rational choice theory mainly by the above authors, was that economics explicitly severed its ties from psychological research. The same trend continued in the following decades with the formation of the “microfoundations” and the “rational expectations” literature which extended rational choice theory to macroeconomics. The subsequent application of rational choice theory to most areas of economics such as public choice theory and labor economics, completed the Paretian turn of mainstream economics.
    On the other hand, the afore-mentioned Paretian turn did not take place within the non-mainstream economic approaches. The old Institutional school and several other dissenters like G. Katona, G. Shackle, T. Scitovsky and F. Hirsch among others are some relevant examples. Furthermore, the work of Herbert Simon has been regarded as the inspiration for most modern behavioral economists. Simon criticized the mainstream model of “Homo Economicus” from a psychological viewpoint. By focusing on the behavioral and cognitive processes of humans making decisions, Simon argued that the conception of economic man as a lighting calculator of costs and benefits is unrealistic. Accordingly, in the late 1970s, the theoretical and empirical validity of neoclassical economic rationality as expressed in the expected utility theory, started to be questioned further by psychologists Daniel Kahneman, Amos Tversky, and Paul Slovic. These works are considered to have given the stimulus for the rise of modern behavioral economics.

    The article’s main goal is to redefine the economic agent, that is to “investigate the social nature of an economic agent in a realistic setting of the market”. However, I think that there are several issues that the author should address in a revised manuscript.
    First of all, the author should try to explain more clearly how his paper adds new insights for the discipline, which cannot be found in already published articles. Additionally, the paper should use more secondary literature to discuss the topic it treats in detail. All in all, the author is advised to thoroughly rethink what this paper is about and mainly what its contribution to already existing scholarship could be.
    For instance, the strive of late marginalist/neoclassical economics to expel psychology from economic theory (Pareto, Slutsky, Hicks, Allen, Samuelson) is a well-researched topic. Given the recent discussion of re-introducing psychological elements in economics mainly in the context of behavioral economics, there are also various papers and books that focus on the history of behavioral economics since WWII discussing issues regarding economic rationality, the concept of economic agents as well as the role of loss aversion, expectations’ formation, etc. Is there actually something new and novel in the present work or at least an interesting synthesis of already known ideas?
    Therefore, I think that the author should be very careful when he writes: “I would like to address the modern-day economic rationality and irrationality proposition from a new and different point of view”. Taking into consideration the existing related (vast) literature, he should clearly describe and explain this new and different viewpoint.

    Specific comments, remarks, and some necessary corrections:
    • In the 1st paragraph of the Introduction (page 1), line 7, there is a mention to the “psychic income” in the economic theory. I think that some references are needed here.
    • Intro, 2nd paragraph, line 2: “fathers” instead of “father”
    • Intro, 2nd paragraph: “For some classical authors, this character…while for others…”. I think the author should mention here some specific economists-writers as examples.
    • Please correct throughout the text the first name of Weber (Max instead of Marx)
    • During Classical economists’ era, there was no distinction between economics and political economy. So, I think that it is not correct to call Smith the father of economics and Mill the father of political economy. We owe this differentiation (economics vs. political economy) to Marshall (see last paragraph of page 2 and second line of page 3).
    • In order to strengthen the arguments concerning Weber, the author may use and add secondary literature in the related section (2.3). However, I am not so sure whether we should regard Max Weber as one of the three most important economists of all time. Weber was undoubtedly a very influential and significant social scientist, but he was more a sociologist than an economist, and his influence on the development of economic science was not so comprehensive compared to Smith, Mill and other prominent economists.
    • The author should add the specific pages on all the cases where quotations are inserted in the text. For example, in the last paragraph of page 3, there are two such quotations (by Knight 1960 and Stigler 1987).
    • Please, correct Stigler instead of Stilger and Sugden instead of Sudgen (see also the references list)
    • In the last paragraph of page 3, the last sentence should be corrected and rewritten.
    • On page 5, 3rd paragraph, line 2: delete “.” after (Zouboulakis 2001)
    • On page 6, 5th paragraph, lines 5-6: the author refers that Historical school influenced, inter alia, by Darwin. This point, connecting it to the topic under consideration, could be further developed by the author.
    • On page 7, line 15: the word “as” should be added after “human being…”
    • On page 8: the correct is “Jevons” instead of “Jevon” (see 3rd paragraph). Moreover, the reference with respect to Williamson (5th paragraph) should be added in the text.
    • On page 9, paragraph 3, the author writes: “I think an individual strives to maximize his comfort. The agent may not care to maximize utility, but simply want to earn which he regards as satisfactory…”. However, it is not clear here if the individual should look for a satisfactory solution or the optimum one.
    • On page 9, paragraph 4, the author also writes: “The concept of fulfillment and contentment is not to be seen anywhere in classical economic theory, but it enters prominently when studying the motivation in the field of psychology”. I would add that it also enters heterodox economic approaches.

    A few bibliographic suggestions:
    Angner, E. and Loewenstein, G. (2012). “Behavioral economics”, in U. Mäki (ed.) Philosophy of Economics, Amsterdam: Elsevier: 641-690.
    Bruni, L. and Sugden, R. (2007). “The road not taken: How psychology was removed from economics, and how it might be brought back,” The Economic Journal 117: 146-173.
    Drakopoulos, S. and I. Katselidis (forthcoming), Economics and Psychology: An Uneasy History, London: Routledge.
    Earl, P. (2022). Principles of Behavioral Economics: Bringing Together Old, New and Evolutionary Approaches. Cambridge: Cambridge University Press.
    Giocoli, N. (2003). Modeling Rational Agents: From Interwar Economics to Early Modern Game Theory. Cheltenham: Edward Elgar.
    Heukelom, F. (2014). Behavioral Economics: A History. Cambridge: Cambridge University Press.
    Levitt, S. D., and List, J. A. (2008). “Homo economicus evolves,” Science 319 (5865): 909-910.
    Ross, D. (2012). “Τhe economic agent: Not human, but important,” in U. Maki (ed.), Philosophy of Economics, Amsterdam: North-Holland: 691-735.
    Truc, A. (2022). “Forty years of behavioral economics,” The European Journal of the History of Economic Thought, 29 (3): 393-437.
    Zouboulakis, M. (2014). The Varieties of Economic Rationality. London: Routledge.

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